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What's going on?
Elliott Management, an activist hedge fund, has helped to push out the CEO of a large US company much to the apparent delight of its shareholders!
What does this mean?
The company in question, Arconic, was created last year when aluminum giant Alcoa split into two companies. Elliott, which is also trying to force changes at the worlds largest mining company, has argued that Arconics costs are too high and the company, essentially, would be much more profitable if it were run by a different CEO.
Why should I care?
For the stock: Investors took the news positively.
The trigger for the CEOs departure appears to be a letter that he sent to Elliott without the permission of Arconics board (the exact details of the letter are unclear at this stage). The company said its CEOs departure was not explicitly due to Elliotts pressure. Whatever the reason, perhaps the more important thing is that the deck is now clear for a new CEO to take over and investors appear to like the prospect of that Arconics stock rose more than 5% after the news broke.
The bigger picture: Its important that the managements of large companies are held to account.
Many large investors are not prepared to shake the boat, either because they are passive funds that simply track the broad stock market and therefore take no active role, or because they are just far less inclined to take a public confrontational role. Activist investors often fill this void. Whether the departure of Arconics CEO is a positive for Arconic or not remains to be seen, but the process of forcing management to justify their decision-making is typically a healthy one for companies.
Originally posted as part of the Finimize daily email.
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